Cash retailer Mr Price delivers a strong first half performance 2011CASH RETAILER MR PRICE DELIVERS A STRONG FIRST HALF PERFORMANCE

Operating profit up 26%
Interim dividend per share up 22%
Headline earnings per share up 22%
New generation stores to open in second half (Durban, 15 November 2011)

Mr Price Group today announced that retail sales for the 26 weeks ended 1 October 2011 increased by 10.7%, while sales in like-for-like locations were up by 9.6%. The growth compares favourably with the 7.5% growth achieved in the retail sector for the five months to August 2011, as reported by Statistics South Africa. Retail selling price inflation of 5.5% was recorded and 84.6 million units were sold, an increase of 5.4%.

CEO Stuart Bird commented: “Sales growth was impacted by the high base set by the extended school holidays associated with the FIFA World Cup 2010 which took place in June and July last year. Excluding these two months sales growth amounted to 14.3%.”

Total costs and expenses increased by 8.9%, a rate lower than sales growth, as a consequence of continued tight cost control. Cost of sales rose by 10.4% resulting in the gross margin percentage improving from 41.2% to 41.3% of retail sales. Selling expenses increased by 7.5% and administrative expenses increased by 1.8%, primarily as a result of the mark-to-market of forward exchange contracts at period end. Excluding the impact of foreign exchange fluctuations in both periods, administrative expenses increased by 7.6%.

Profit from operating activities grew by 26.1% and the operating margin improved from 11.3% to 12.9% of retail sales. Lower interest income and higher taxes due to an increased STC charge on the high final dividend relating to the previous year resulted in headline earnings per share increasing by 22.2% to 187.3 cents. “This growth is pleasing as it is up against the 51.1% growth at the same stage last year,” said Bird.

“Although we are not in business to win awards, we are delighted that The Sunday Times Top 100 Companies review reflected that our investors and associates have benefitted by Mr Price being ranked seventh on the JSE for share price performance over the last five years, and tenth over ten years. The group was the top placed clothing retailer,” continued Bird.
The Apparel chains increased sales and other income by 11.2% to R3.9 billion, with comparable sales up by 8.8% and retail selling price inflation of 5.1%. Operating profit grew by 19.0% to R626.6 million and the operating margin increased from 15.4% to 16.5% of retail sales. Mr Price Apparel recorded sales growth of 11.2% (comparable 8.8%) to R2.9 billion (55.7% of group sales) and operating profit was well ahead of the prior period. Mr Price Sport opened four new stores which contributed to sales increasing by 20.5% (comparable 7.6%) to R293.6 million and exceeded budgeted profitability levels.Miladys increased sales by 6.4% to R514.7 million despite closing a net six stores. Comparable sales growth was 9.4% which, together with excellent cost control, resulted in a significant increase in operating profit.

The Home chains increased sales and other income by 9.7% to R1.5 billion, with comparable sales up by 11.5% and retail selling price inflation of 6.6%. Operating profit rose by 57.3% to R130.5 million and the operating margin increased from 6.1% to 8.8% of retail sales. Mr Price Home increased sales by 7.8% (comparable 9.8%) to R1.0 billion. Operating results benefitted from a slightly improved gross margin percentage and cost curtailment. Sheet Street increased sales by 14.0% (comparable 14.9%) to R468.9 million and operating profit significantly exceeded both the prior year and budgeted levels.
 
“81% of sales were for cash and this business model has enabled us to maintain our strong balance sheet.Despite increased dividends, capital expenditure more than doubling and purchasing treasury shares to the value of R211.1 million, we ended the period with cash resources of R900.0 million,” said Bird.

A strategy of increasing inventory levels for previously understocked trading periods will position the group to take advantage of sales opportunities in the second half of the year. Despite higher inventory levels, stock turn increased from 6.5 times to 6.9 times. The group has historically applied very stringent credit granting criteria and the decision taken to extend more credit to high performing account holders has resulted in gross trade receivables increasing by 11.6% to R954.0 million. The book has continued to be well managed, with a net bad debt to book ratio of 4.1% and is adequately provided against at period end. Although volatile currency exchange rates and international stock markets have resulted in local consumers being concerned about the future performance of the economy, many expect that their own finances will be shielded from these developments. Their sentiment has been positively influenced by views that interest rates are unlikely to increase in the short term. “We expect trading conditions to remain tough, but are encouraged by positive October sales growth,” said Bird. “This augurs well for the festive season.” “We will continue to actively pursue space expansion opportunities, and are excited about the rollout of new generation stores in our three Mr Price chains, starting in Sandton City in November which are designed to further improve our customers’ shopping experiences,” he continued. “We are also looking forward to the opening of our first test store in Nigeria in March 2012.”

Shareholders and investors are reminded of the high base set in the second half last year, which included 27 trading weeks and a strong recovery of previously underperforming chain